Paulson Dropped TARP Before Congress Approved It!

The Wall Street Journal is reporting today that Treasury Secretary Paulson realized on September 29 that he would not use his $700 billion bailout plan for the purpose he convinced Congress to approve the money for: to buy illiquid assets from financial institutions.

In “Treasury Draws Fire for Shift in Rescue”, a “person familiar with his thinking” tells the Journal that after watching the Dow drop nearly 800 points after the House failed to pass his Troubled Asset Relief Program (TARP), Paulson “began to realize that asset purchases wouldn’t be enough to turn markets around.” The Journal reports that the day after the September 29 House vote – before the Senate’s October 1 vote and before the House passed and President Bush signed the bill October 3 – Paulson “ordered his staff to start figuring out how an equity investment program might work instead.” By all outward appearances, Treasury was proceeding with the plan to buy troubled assets. On October 7 Treasury began soliciting bids to hire asset managers to oversee the distressed assets. Treasury held extensive discussions with Wall Street people regarding setting up the structure of the purchase plan. Paulson appointed Assistant Treasury Secretary Neel Kashkari to oversee the TARP, and on October 23 Kashkari assured Congress that Treasury was making “rapid progress” on getting the distressed asset program up and running.

In “TARP Blows Off Paulson’s Plan”, I wrote that the planetary energies surrounding Paulson’s public admission on November 12 reflected that he deceived Congress regarding how he intended to use the $700 billion. He knew if he told Congress what he really intended to do with the money, Congress would not have approved it. It is my contention that Paulson’s plan all along was to use the TARP for bank consolidation by capitalizing “healthy banks” he deemed worthy of surviving so those banks could then use the government’s money to acquire other banks. Paulson was born with the Sun (self-identity) conjoining Mercury (communication) retrograde* in impulsive and fast-acting Aries opposing Neptune in Libra. This alignment gives him a tendency to reverse his plans (Mercury retrograde). At a September 23 hearing about the TARP plan before the Senate Banking Committee, Paulson made it clear he was against capital injections. Paulson scrapped his “super SIV” plan last year, a precursor to the TARP. Neptune energy is visionary but can also be unrealistic and deceptive, whether consciously or unconsciously. The September 29 Libra New Moon conjoined Paulson’s natal Neptune, accentuating Paulson’s natal tendencies.

Paulson and the Federal Reserve helped to create a massive financial panic of global proportions by allowing Lehman Brothers to go under and then being overly punitive with American International Group (AIG).** He realized he needed to do something quickly now that Goldman Sachs (GS) was in trouble. Paulson and Bernanke presented Congress with a financial picture so dire that Congress needed to act now to prevent a financial apocalypse. In this key presidential election year, most members of Congress were afraid to challenge Paulson’s $700 billion bailout bill written so broadly that Paulson had the latitude to do pretty much what he pleased. Congress was so afraid that they overlooked the fact that Paulson had already duped them with his GSE plan that gave him broad-based authorities that he emphasized to Congress he probably wouldn’t need to ever use. Less than two months later, the GSEs were quasi-nationalized.

I pointed out in several previous posts that because the TARP bill was debated and passed Congress when Mercury was retrograde, the plan was unlikely to be enacted as originally intended. Both the charts for Paulson’s September 19 announcement of the TARP and his October 14 announcement of the bank capital injection plan reflect a hidden agenda as Scorpio is rising.*** Scorpio’s classical ruler Mars is in the area of the chart representing hidden motives. Venus (banking) is prominent in both charts and Pluto (Scorpio’s modern ruler) is in the area of the chart representing banks and the banking system, reflecting that Paulson’s plan is about which banks live and which banks die from acquisition. In preparation for Paulson’s bank capitalization plan, shortly before midnight on Sunday September 21, the Federal Reserve expedited approval for Goldman and Morgan Stanley to become “banks.”

Paulson, Bernanke or any other government official should not be making government policy in reaction to the movement of the stock market. Financial markets crave stability, which is exactly what Paulson has not demonstrated in his flip flop handling of the financial crisis. Now financial markets are reacting to the fallout that financial institutions holding CDOs, MBS and other illiquid financial instruments will face greater losses as the toxic assets they thought they would be able to sell to the TARP are now worth even less. Former RTC chief and head of the Securities Industry and Financial Markets Association Tim Ryan, told the Financial Times that “banks will not lend aggressively until they know how big their balance sheet hole is. They will not know this until someone restarts trading in these assets, leading to a price discovery process.”

While Assistant Treasury Secretary Kashkari faced a grilling by the House Oversight Committee about Paulson’s reversal, Paulson found the time to defend his actions on CNBC this afternoon. In an irritated tone he kept reiterating that “you’re never, ever, ever going to get me to apologize for being so prudent to change a strategy when the facts change, and to do it in a way that protects the taxpayer." He said this is why he asked Congress for “a broad set of tools” to help the financial system. Paulson said putting money in banks “protects the taxpayer” as “how someone is going to lose money putting equity in preferred stock in banks.” And sure enough, Paulson alluded during the interview that Treasury might have yet another plan “at some time in the not too distant future” that would be part of the $700 billion bailout.

Thankfully Paulson’s days as Treasury Secretary are numbered. The chart for President-Elect Obama’s inauguration indicates that the TARP and a lot of other Bush administration legislation will be reversed, revised or ended.

*Planets do not really move backwards, but appear to from Earth’s vantage point.

**The terms on the AIG deal were revised earlier this week to include $40 billion in equity from the TARP, along with a modification in the Federal Reserve’s loan (interest rate reduction and loan term extension to five years).

***The sign on the eastern horizon (the Ascendant/first house) of the two event charts.